1
Indonesia’s gross domestic product (GDP) grew by 5.01% YoY, higher than the more modest projections of most analysts. The economy however, also appears to have contracted by 0.96% on a quarterly basis.
This quarterly decline however, is more a function of pandemic-era distortions rather than a structural sluggishness in the economy itself. Indeed, growth in Q4-2021 received a significant boost from pent- up demand as Delta wound down. Growth in the following quarter then, not only softened as the economy began to normalize from this high-base, but was further held back by the outbreak of Omicron.
In sum, these numbers show that the Indonesian economy has moved closer to its pre-pandemic growth average, and appears to be broad-based as well (Chart 1), yet another sign of growth normalization.
A glimpse at the sectoral breakdown of the data however, also reveals that while the recovery appears to be broad-based, most of this recovery seems to be disproportionately driven by consumption-related sectors. Indeed, household consumption has been growing at a faster pace (+4.34% YoY in Q1 2022 vs +3.55% in Q4-2021), and its contribution to GDP growth has been steadily increasing over the past 3 quarters as well. This indicates that domestic mobility and consumption continue to recover as the economy becomes more resilient to pandemic-related shocks.
Increasingly robust consumption is yet another indicator of the economy’s normalization, as its recovery signals a return to Indonesia’s pre-pandemic days, where consumption would typically be the dominant driver of economic growth. However, several challenges could also threaten consumption’s newfound resilience. Firstly, despite relatively benign price increases throughout Q1-2022, individual consumers appear to already be running out of dry powder to absorb further price increases in the coming months (Chart 2). Indeed, much of the consumption growth seen in Q1-2022 has been spearheaded by discretionary spending as consumer confidence moves onto increasingly solid ground. Higher inflation however, as well as the rollback of government stimulus, could force consumers to re-route more of
Executive Summary
Indonesia’s GDP grew by 5.01% YoY in Q1-2022. The recovery appears to be broad- based, as strengthened confidence boosts growth in consumption and investment while exports remain the fulcrum of Indonesia’s post-pandemic recovery.
Consumption growth appears to be spearheaded by an increase in spending on non- essentials. This, however, would make future consumption growth more sensitive to inflation as increasing prices of necessities could limit spending on discretionary goods.
While high commodity prices continue to do the trick for the Indonesian economy, the spectre of global economic stagflation will soon reveal the extent to which the external sector can be relied upon to keep the growth momentum alive. Policies such as a progressive windfall tax could provide a way to prolong the growth momentum derived from trade gains while also providing funds for programs that shield consumers from the full brunt of global inflation.
GDP:
Domestic tailwinds, external headwinds
10 May 2022
Lazuardin Thariq H.
Economist/Analyst
Derrick Gozal Economist/Analyst
2
their income from discretionary goods towards staples, taking some impetus out of the forces that had hitherto been driving consumption.
This recovery in domestic consumption may have also justified growing confidence in the business sector, in line with the 4.09% increase in fixed-asset investment (also in line with the expansion of manufacturing PMI figures over the same period) as business activities roared back to life. Despite growing uncertainties, particularly in the global market, several developments may still generate some momentum that could help support investment. For instance, the re-commencement of several of the government’s infrastructure projects would help keep the impetus for investments alive. It is corporate sector investment however, that took the lead in investment growth in Q1-2022, as growing confidence continued to fuel the corporate sector’s ardor for business expansion.
The external sector (+16.22% YoY) however, remains the primary breadwinner of the Indonesian economy, with exports contributing to 3.55 percentage points of growth (a significant chunk of a headline growth figure of 5.01%) on its own. This of course, was largely fuelled by soaring commodity prices, which may also explain Indonesia’s somewhat elevated imports. It goes without saying that the post-pandemic commodity boom has helped mollify many of the challenges limiting domestic economic recovery, as hard currencies gained from exports provide the liquidity necessary to
promote domestic consumption and fixed-asset investments. The fact that these export growth figures also declined from previous quarters however, also reveals the detrimental effects of the export- restriction policies introduced by the government throughout Q1-2022, which might also account for some of overall GDP’s quarterly decline.
While commodity prices continue to move in Indonesia’s favor, such an advantage could fade as the global economy tiptoes into another slowdown. As discussed in our previous report (“Trade: Winds of fortune continue to breeze”), a combination of lower demand in the US as well as China’s economic slowdown could bring global trade to a halt, suppressing the commodity price boom that has so far been a boon to Indonesia’s economic prospects. Even if commodity prices remain obdurately high, it is less than likely that exports would continue to move further up north as high prices would eventually limit the volume of commodities demanded.
The main question then, is how the government would utilize this commodity export windfall to shield the domestic economy from the rising risks of global stagflation. Firstly, it is worthwhile to note that while aggressive price control policies such as export restrictions are a blunt and straightforward instrument for controlling domestic prices, such policies would prove increasingly deleterious in the long term, as removing supply from an already deprived global market would exacerbate the inflationary pressures that the government is seeking to control in the first place. As such, lifting export restrictions while imposing a form of “progressive windfall taxes” may be a better way to shift the large surpluses of rising commodity prices to the social programs necessary to cushion customers from the adverse effects of rising prices. The government could also push the corporate sector to direct their excess liquidity to finance investment projects, providing a boost to the economy as global stagflationary pressures bear ever more oppressively upon it.
“While commodity prices continue to move in Indonesia’s favour, such an advantage could fade as the global economy tiptoes into
another slowdown
”.3 Chart 1. The external sector remains responsible for GDP growth despite consumptions
has been increasingly robust
Chart 2. Household consumers running out of liquidity to back-up consumptions, while provisions remain for the corporate sector to charge ahead.
Source: Bank Indonesia, calculations by BCA economists
-5.32%
5.01%
-20%
-10%
0%
10%
20%
2015 2016 2017 2018 2019 Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
▬▬GDP growth, contributions from:
Household consumption Fixed-asset investment
Government spending Exports
Imports (negative cont. )
Others (inventory, non-profits, etc.)
Source: BPS
-26.4
-800 -600 -400 -200 0 200 400 600 800 1000
Jan-11 Aug-12 Mar-14 Oct-15 May-17 Dec-18 Jul-20 Feb-22
IDR Tn
▬ Savings-investment gap (annual bank deposit growth minus bank loan growth), by sector:
Individuals (incl. SMEs) Private corporates
SOE Government
Source: BI, calculations by BCA Economist
% YoY
4 Table 1. Gross Domestic Products by sector (nominal)
2020 2021 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22
Rp Tn Share Rp Tn Share Rp Tn Rp Tn Rp Tn Rp Tn Rp Tn
Agriculture, livestock, forestry,
and fishery 2,115.4 13.7 2,253.8 13.3 525.3 596.9 619.4 512.2 566.5 Mining and
quarrying 993.5 6.4 1,523.7 9.0 303.4 338.0 413.1 469.1 472.9 Manufacturing
industry 3,068.0 19.9 3,266.9 19.3 787.4 805.6 828.4 845.4 866.3 Electricity and gas 179.7 1.2 190.0 1.1 46.7 46.1 47.6 49.7 50.0 Water provisioning
and waste recycling
11.3 0.1 12.0 0.1 2.9 3.0 3.0 3.1 3.0
Construction 1,652.7 10.7 1,771.7 10.4 428.7 422.5 449.3 471.3 470.4 Wholesale trade
and repairs 1,994.1 12.9 2,200.5 13.0 519.4 546.3 562.9 571.9 590.9 Transportation and
warehousing 689.6 4.5 719.6 4.2 169.7 176.0 168.9 205.2 208.5 Hotels, restaurant,
and catering 394.1 2.6 412.3 2.4 101.5 103.5 97.6 109.7 110.1 Information and
communication 696.0 4.5 748.8 4.4 181.8 185.3 189.0 192.7 196.0 Financial services
and insurance 696.1 4.5 736.2 4.3 181.9 184.4 184.4 185.5 195.9 Real estate 453.8 2.9 468.2 2.8 114.3 116.3 118.3 119.3 120.4 Business services 294.3 1.9 301.1 1.8 74.8 75.5 73.7 77.2 81.0 Govt.
administration , defence, and social security
582.6 3.8 584.4 3.4 138.9 158.1 127.6 159.8 138.8 Educational
services 549.6 3.6 556.3 3.3 128.9 141.1 132.8 153.6 128.6
Healthcare and
social services 201.2 1.3 227.0 1.3 49.6 52.2 60.9 64.2 52.3 Other services 302.6 2.0 312.2 1.8 76.9 77.4 76.5 81.4 84.7 GROSS
DOMESTIC
PRODUCT 15,438.0 100.0 16,970.8 100.0 3,971.2 4,176.4 4,325.2 4,498.0 4,513.0
Table 2. Gross Domestic Products by expenditure (nominal)
2020 2021 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22
Rp Tn Share Rp Tn Share Rp Tn Rp Tn Rp Tn Rp Tn Rp Tn
Household
consumption 8,899.9 57.6 9,236.0 54.4 2,259.7 2,300.3 2,296.2 2,379.7 2,421.4 Consumption by non-
profit organizations 201.4 1.3 207.8 1.2 49.1 52.8 52.6 53.3 53.3 Government
consumption 1,474.1 9.5 1,551.7 9.1 267.8 360.5 391.8 531.5 247.8 Fixed-asset
investment 4,897.0 31.7 5,227.9 30.8 1,269.7 1,246.8 1,316.4 1,394.9 1,373.7 Exports of goods and
services 2,666.4 17.3 3,659.0 21.6 766.9 854.6 971.7 1,065.9 1,042.4 Imports of goods and
services 2,424.4 15.7 3,201.0 18.9 704.7 782.2 790.3 923.8 924.4 GROSS DOMESTIC
PRODUCT 15,438.0 100.0 16,970.8 100.0 3,971.2 4,176.4 4,325.2 4,498.0 4,513.0
Selected Macroeconomic Indicators
Source: BPS
5 Table 3. Gross Domestic Products by sector (%YoY)
Last 3 Years Last 3 Quarters
2019 2020 2021 Q3-21 Q4-21 Q1-22
Agriculture, livestock, forestry, and fishery 3.60 1.77 1.84 1.43 2.28 1.16
Mining and quarrying 1.22 -1.95 4.00 7.78 5.15 3.82
Manufacturing industry 3.80 -2.93 3.39 3.68 4.92 5.07
Electricity and gas 4.04 -2.34 5.55 3.85 7.81 7.04
Water provisioning and waste recycling 6.83 4.94 4.97 4.56 4.14 1.29
Construction 5.76 -3.26 2.81 3.84 3.91 4.83
Wholesale trade and repairs 4.60 -3.78 4.65 5.15 5.56 5.71
Transportation and warehousing 6.37 -15.05 3.24 -0.72 7.93 15.79
Hotels, restaurant, and catering 5.79 -10.26 3.89 -0.14 4.95 6.56
Information and communication 9.42 10.61 6.81 5.54 6.21 7.14
Financial services and insurance 6.61 3.25 1.56 4.29 -2.59 1.64
Real estate 5.76 2.32 2.78 3.42 3.94 3.78
Business services 10.25 -5.44 0.73 -0.59 0.89 5.96
Govt. administration , defence, and social
security 4.63 -0.03 -0.33 -9.95 0.98 -1.45
Educational services 6.30 2.61 0.11 -4.42 0.70 -1.70
Healthcare and social services 8.66 11.56 10.46 14.06 12.16 4.38
Other services 10.56 -4.10 2.12 -0.30 3.35 8.24
GROSS DOMESTIC PRODUCT 5.02 -2.07 3.69 3.51 5.02 5.01
Table 4. Gross Domestic Products by expenditure (%YoY)
Last 3 Years Last 3 Quarters
2019 2020 2021 Q3-21 Q4-21 Q1-22
Household consumption 5.04 -2.63 2.02 1.02 3.55 4.34
Consumption by non-profit organizations 10.67 -4.25 1.59 2.79 3.29 5.98
Government consumption 3.29 1.96 4.17 0.62 5.25 -7.74
Fixed-asset investment 4.48 -4.96 3.80 3.76 4.49 4.09
Exports of goods and services -0.51 -8.14 24.04 29.16 29.83 16.22 Imports of goods and services -6.92 -16.72 23.31 29.95 29.60 15.03
GROSS DOMESTIC PRODUCT 5.02 -2.07 3.69 3.51 5.02 5.01
Source: BPS
6
* Provisional numbers for 2021
** Estimation of Rupiah’s fundamental exchange rate
2017 2018 2019 2020 2021 2022E
Gross Domestic Product (% YoY) GDP per Capita (US$)
Consumer Price Index Inflation (% YoY) BI 7 day Repo Rate (%)
USD/IDR Exchange Rate (end of year)**
Trade Balance (US$ billion) Current Account Balance (% GDP)
5.1 3877
3.6 4.25 13,433
11.8 -1.6
5.2 3927
3.1 6.00 14,390
-8.5 -3.0
5.0 4175
2.7 5.00 13,866
-3.2 -2.7
-2.1 3912
1.7 3.75 14,050
21.7 -0.4
4.0*
4350*
1.9 3.50 14,262
35.3 0.6*
4.8 4615
4.2 4.0 14,660
48.5 1.4
Indonesia – Economic Projections Table
PT Bank Central Asia Tbk
Economic, Banking & Industry Research of BCA Group 20th Grand Indonesia, Menara BCA
Jl. M.H Thamrin No. 1, Jakarta 10310, Indonesia Ph : (62-21) 2358-8000 Fax : (62-21) 2358-8343
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